U.S. Senate Bill Aims to Curb Texas Two-Step Bankruptcies
The American Bankruptcy Institute (“ABI”) reports that on 7/23/24, U.S. Senators introduced a bipartisan bill yesterday that would deter so-called Texas two-step bankruptcies, saying that wealthy companies should not be able to stop lawsuits by dumping their liabilities into a bankrupt shell company, Reuters reported. Sens. Sheldon Whitehouse (D-R.I.) and Josh Hawley (R-Mo.) introduced the “Ending Corporate Bankruptcy Abuse Act of 2024” that would prevent financially healthy companies from evading “responsibility for injuries they caused” or bog down consumers in lengthy bankruptcy proceedings, they said in a statement. “Large corporations on solid financial footing — like Johnson & Johnson and Georgia-Pacific — shouldn’t be able use the Texas two-step trick to shirk responsibility for injuries their products have caused,” Whitehouse said. The new legislation aims to end the “dirty back-room deals” that companies use to shield themselves from answering for corporate misconduct, Hawley said. The proposed legislation would stop bankruptcy judges from issuing temporary orders that stop lawsuits from proceeding against non-bankrupt affiliates of a Texas two-step debtor. The bill would also instruct bankruptcy courts to dismiss Texas two-step cases unless a debtor can prove that its case was filed in good faith, and it would make it easier for judges to dismiss bankruptcy cases filed in the 4th U.S. Circuit Court of Appeals, where the Bestwall case and other Texas two-step cases have been filed.